GBP/USD – Strong Gains For Pound As Non-Farm Payrolls Falters

The British pound is up sharply against the dollar on Tuesday, as GBP/USD has barreled above the 1.62 line. The pound received a shot in the arm as US Non-Farm Payrolls was a major disappointment, with the key employment indicator slumping to a six-month low. The US unemployment rate dropped to 7.2%, a five-year low. In the UK, Public Sector Net Borrowing posted a smaller deficit in September and beat the estimate.

There was plenty of anticipation leading up to the release of US Non-Farm Payrolls on Tuesday, but the markets were left with a sour taste following the weak release. The indicator dropped to 148 thousand in September, compared to 169 thousand the month before. This was a six-month low, and was nowhere near the estimate of 182 thousand.  Although the unemployment rate dipped to 7.2%, a five-year low, the participation rate remained at 63.8%, its lowest level since 1978. These figures point to US employment market which continues to struggle to create new jobs.

After a bitter political struggle which saw the US on the brink of a sovereign default, the Republicans and Democrats finally reached an agreement last week to reopen the government and raise the debt ceiling. However, the deal provides short-term relief only – the government will be funded until January 15, while the debt limit will be raised until February 7. So, we could be right back where we started in just a few months. The dollar initially gained ground after the agreement was announced, but was broadly lower as optimism faded.

The markets had expected the Federal Reserve to taper QE back in September, but the prolonged shutdown and debt crisis will likely mean that the Fed will shy away from any QE moves until early next year. On Monday, Chicago Fed Reserve President Charles Evans reiterated his support for continued monetary stimulus, saying that the Fed would likely need a few more months of US employment data before reducing QE. Currently, the Fed is purchasing $85 billion worth of bonds each month, and any scaling back will have a strong impact on the US dollar. Evans said that he doesn’t expect the Fed to make a move at the December policy meeting, given that the deal reached in Congress to reopen the government and raise the debt ceiling does so only for a few months.

GBP/USD for Tuesday, October 22, 2013

GBP/USD October 22 at 15:20 GMT

GBP/USD 1.6214 H: 1.6227 L: 1.6116

GBP/USD Technical

• The British pound has posted strong gains on Tuesday, trading in the low-1.62 range.
• GBP/USD is facing resistance at 1.6231. This line has weakened as the pair has surged higher. This is followed by resistance at the round number of 1.63oo.
• On the downside, there is strong support at 1.6125. The next support level is at the round number of 1.6000.
• Current range: 1.6125 to 1.6231.

Further levels in both directions:

• Below: 1.6125, 1.6000, 1.5877, 1.5756 and 1.5645
• Above: 1.6231, 1.6300, 1.6421 and 1.6512

OANDA’s Open Positions Ratio

GBP/USD ratio is pointing to movement towards long positions in Tuesday trading. This is consistent with the movement of the pair, which the pound posting gains at the expense of the dollar. Short positions maintain a very significant majority of open positions, reflecting a trader bias towards the US dollar reversing course and posting gains against the pound.

The pound has jumped on Tuesday, taking advantage of a dismal US Non-Farm Payrolls release. We could see GBP/USD continue to post gains during the North American session.

GBP/USD Fundamentals

• 8:00 Bank of England Deputy Governor Charles Bean Speaks.
• 8:30 British Public Sector Net Borrowing. Estimate 10.4B. Actual 9.4B.
• 12:30 US Non-Farm Employment Change. Estimate 182K. Actual 148K.
• 12:30 US Unemployment Rate. Estimate 7.3%. Actual 7.2%.
• 12:30 US Average Hourly Earnings. Estimate 0.2%. Actual 0.1%.
• 13:00 US TIC Long-Term Purchases. Estimate 30.9B. Actual -8.9B.
• 14:00 US Construction Spending. Estimate 0.5%. Actual 0.6%.
• 14:00 US Richmond Manufacturing Index. Estimate 0 points. Actual 1 point.
• 14:30 US Natural Gas Storage. Estimate 81B. Actual 77B.

*Key releases are highlighted in bold

*All release times are GMT

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